Crude to cool down to $50 per barrel
18 August 2006
Shankar Sharma, co founder of First Global says that crude might cool off to $50 per barrel. As a result, he feels this would help the earnings of HPCL and BPCL, adding that their earnings "can quadruple, factoring in oil bonds".
He also says that oil bonds and the fall in crude prices will be a major catalysts for oil stocks.
He is bullish on the tech pack and Ranbaxy, but not too bullish on ONGC as he feels that there is not too much money to be made there. CNBC-TV18 shares with domain-b its exclusive interview with Sharma:
reports say it is time to buy stocks like HP and a BP,
tell us why?
Last time, I had mentioned that the stocks had turned very attractive and that there was a pretty reasonable chance of an up trend. We think that HP and BP are absolutely at the top of their business cycles and they can only get better in terms of the earnings outlook. Our forecast is for earnings to roughly quadruple over the next two years time. That includes the effect of oil bonds, etc.
But what I don't think the market is factoring in is the fact that there is a distinct possibility that oil prices can definitely cool off from the levels of $70-75, where it has been over the last 12 months. Should that happen, while there is no one-to-one relationship between the oil price decline or a rise and a commensurate rise or fall in HP, BP's profits, there will be a lose relationship.
That lose relationship, and rest everything being equal, will mean very good signs if oil were to fall to levels of $50-55 or even $45. Our forecast is that oil will probably see those levels during the course of the next 12 months. Hence, if that happens, one will be looking at a very strong earnings growth scenario.